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Mark Thornton suggest not only should we not raise the debt ceiling, we should lower it.

 

"Both Democrats and Republicans tell us that not raising the debt ceiling would have a negative — even catastrophic — effect on the American and world economies. They are in agreement on this. The only matter of debate is what concessions are necessary in order to establish a bipartisan majority to pass a bill raising the ceiling."

 

"What we really need to do is to lower the debt ceiling. If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources."

 

"Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations. A recent study by the Phoenix Center found that even a small reduction of 5 percent, or $2.8 billion, in the federal regulatory budget would result in about $75 billion in increased private-sector GDP each year and the addition of 1.2 million jobs annually.

Eliminating the job of even a single regulator grows the American economy by $6.2 million and creates nearly 100 private-sector jobs annually."

 

"Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

 

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government's regulatory apparatus. This would put Americans back to work producing consumer-valued goods."

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The Constitution. Every Issue, Every time. No Exceptions, No Excuses.

 

"When the people fear the government, there is tyranny. When the government fears the people, there is liberty."---Thomas Jefferson

 

"That's what governments are for... get in a man's way."---Mal Reynolds Capt. of Serenity, "Firefly-Class" spaceship

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"Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations.

 

It was precisely a lack of financial-market regulations that enable the economic mess we are in now. Anybody that wants to continue conditions like what Wall Street dumped on the country must be some kind of anti-social misfit.

 

"Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

 

Anybody who says that has no understanding of the mechanics of bank lending.

 

Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:

 

[W]hen a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower.

http://www.webofdebt.com/artic...dollar-deception.php

 

It works like this:

 

Suppose you go into a bank for a loan. You will sign a loan agreement, promissory note, or other “promise to pay.” That IOU then becomes an Accounts Receivable (an asset of the bank) and, therefore, part of its reserves. The reserves of the bank have now increased by the amount of the loan. Under fractional reserve banking policy of the Federal Reserve, if the reserve requirement is met, the bank may loan out its “excess reserves.”

 

The bank can then withdraw by cash, check, or whichever method you prefer, from its reserves. It was your promise to pay that created the bank’s authority to disburse from its excess reserves. An entry on the credit side of the bank’s account (your IOU) is balanced by a debit of a loan to you.

 

“If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. See illustration 3.

 

“Suppose a customer of Bank A wants to borrow $100. On the basis of the managements' judgment that the bank's reserves will be sufficient to provide the necessary funds, the customer is accommodated. The loan is made by increasing "loans" and crediting the customer's deposit account. Now Bank A's deposits have increased by $100. However, if reserves are insufficient to support the higher deposits, Bank A will have a $10 reserve deficiency, assuming requirements of 10 percent. See illustration 26. Bank A may temporarily borrow the $10 from its Federal Reserve Bank, which makes a loan by increasing its asset item "loans to depository institutions" and crediting Bank A's reserve account. Bank A gains reserves and a corresponding liability "borrowings from Federal Reserve Banks." See illustration 27.”

 

MODERN MONEY MECHANICS - A Workbook On Bank Reserves And Deposit Expansion

By Federal Reserve Bank Of Chicago

http://loveforlife.com.au/node/6904

 

There can be no shortage of capital, if by that you mean funds for bank lending, so long as there is a willing borrower, a willing lender reasonably sure of the loan being repaid, and reserve requirements are met.

Originally Posted by The Propagandist:

...It was precisely a lack of financial-market regulations that enable the economic mess we are in now. Anybody that wants to continue conditions like what Wall Street dumped on the country must be some kind of anti-social misfit...

 

"Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

 

...Anybody who says that has no understanding of the mechanics of bank lending.

 

There can be no shortage of capital, if by that you mean funds for bank lending, so long as there is a willing borrower, a willing lender reasonably sure of the loan being repaid, and reserve requirements are met.

 

 

 

 


 

 

It amazes me the lengths some will go to defend the unsustainable debt the federal government has run up.  Like $15T or $16T debt puts in better shape than say $12 or $13T...Those are some very rosy glasses...

 

While the "far flung regulatory operations" mentioned in the article was not specific to the financial markets, this "lack of financial-market regulations" led to the economic mess is simply a myth perpetuated by a federal government and their shills to point fingers at everyone but themselves.

 

Do you actually believe we have unhampered capitalism now?  Or anytime in recent history for that matter?  I suppose we are supposed to overlook the 80,000 pages added to the Code of Federal Regulations every year.  And while we're at it, don't even think of the hundreds of federal agencies...not to mention those of state and local governments...the millions of federal employees whose salaries are paid out of the productive labor of the rest of the population, and the trillions of dollars in taxes.

 

I guess you also believe our banking system is free market?  I mean all we ever hear about from our wise over lords in Washington and in the news media is "deregulation"...and of course they wouldn't lie or distort would they?

 

In fact the banking system may be the least free sector of our economy.  I'll quote Dr. Tom Woods, who wrote an entire book on the whole mess MELTDOWN:

 

"The whole system is overseen by the government-created Federal Reserve System, which presides over a system-wide cartel. It involves monopolistic legal tender laws, a monopoly of the note issue, artificial disabilities on other media of exchange apart from the depreciating dollar, and various forms of bailout guarantees."

 

Further quote from Dr. Woods:

 

“I cover this in detail in my forthcoming (February 7) book Rollback.  For now, I’d ask your friends for specific examples of deregulation that led to the present crisis.  They can’t name one.  There isn’t a repealed regulation that would have prevented the securitization of mortgages, or prevented banks from holding such securitized mortgages as investments.  Banks were allowed to do this all along.  If they cite the so-called repeal of Glass-Steagall they are even more clueless.  The partial lifting of barriers between commercial and investment banking had exactly zero to do with the financial crisis.  (Much more on this in my book.)

“Moreover, who could possibly look at banking and think this was a deregulated industry?  Regulation is absolutely everywhere.  No one seems willing to consider the possibility that regulation may simply have failed, that regulators may be human beings rather than demigods, etc.  Walter is right: banking is the most heavily regulated industry in AmericaThere are already 115 agencies regulating the U.S. financial sector.  Your friends think things would improve if there were 116.  They are stuck in an interventionist worldview they cannot break free of.  The thought never occurs to them that the very institutions that are supposed to provide stability may be the sources of instability — beginning with the Federal Reserve.  This story is told in my book Meltdown."

 

 

In regard to "... The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

 

...Anybody who says that has no understanding of the mechanics of bank lending."

 

I freely admit I'm light years from having a deep understanding of economics, but you are misunderstanding "capital" here...Thornton is speaking of actual capital investment...not counterfeited currency.

 

As a matter a fact in your explanation you actually hit on the real culprit to the financial meltdown.

 

"There can be no shortage of capital, if by that you mean funds for bank lending, so long as there is a willing borrower, a willing lender reasonably sure of the loan being repaid, and reserve requirements are met."

 

There's no shortage of "capital" if the Fed is willing to create money out of thin air.

 

Originally Posted by b50m:

If your theory was correct Prop, we wouldn't need stimulus money. The banks would be making loans, and the housing crash would not have happened.

 

The housing crash happened because people borrowed money they couldn’t repay. And people could borrow only because banks’ lending was loose. There was a massive sudden glut of houses on the market, so prices began a race toward the bottom. Supply was suddenly high; demand suddenly low. The bank may have loaned $200,000 for a house, but now owns a foreclosed house it can only sell for $140,000. Where did that other $60,000 go? It "poofed" out of existence the same way it "poofed" into existence.

 

Forty percent of the supposed "assets" had to be written off as uncollectible. The banks are not lending because, after that, they are not sure who will be able to repay. Jobs are being lost; paychecks not being deposited; no new reserves being posted to loan against. “Who can repay?” determines if that new loan is ever created.

 

Banks aren’t going to start handing out money just because they can. They are becoming very selective, because those loans that were written off decreased their reserves and their amount available to loan. "Once bitten, twice shy." They are in business to “make” money (that can be taken seriously or in jest, or both).

 

American households have seen real estate values plummet by at least $4.2 trillion but mortgage debt has only fallen by $140 billion.  This is the large predicament we now find ourselves in.  Much of this is being corrected through the foreclosure process.  Residential property values have fallen and either consumers live in an asset that is no longer worth a peak price, or lose the home so it is liquidated at a new market value.

 

$4.2 trillion has disappeared and needs to be reconciled.  Many of the bailouts and the haphazard measures to prop up housing prices fail to acknowledge that there can be a significant probability that trillions of dollars were merely a mirage.  That value is now being reflected without the special bubble lenses.  However, the debt is still out there and reflecting optimistic valuations on the books of many banks.  The FDIC is realizing this through the weekly failure of banks.

The $4.2 trillion in lost real estate value is a new reality.  This for the most part is a large reason for the massive amount of foreclosures.  Negative equity brought on by years of dubious lending.  At the moment, there is painful reconciliation of the balance sheet.  Americans are doing their part yet Wall Street isn’t.  In fact, they are on path to having another record breaking year with more rounds of epic bonus paydays as they exploit the imbalances in the system.  This is courtesy of the U.S. taxpayer since many of the firms would be obsolete if it weren’t for the historical bailouts.  No one has bailed out the average American although the pretext to the Wall Street bailouts was to help the average person.

 

http://www.mybudget360.com/the...down-by-140-billion/

Originally Posted by Renegade Nation:

I freely admit I'm light years from having a deep understanding of economics, but you are misunderstanding "capital" here...Thornton is speaking of actual capital investment...not counterfeited currency.

 

As a matter a fact in your explanation you actually hit on the real culprit to the financial meltdown.

 

"There can be no shortage of capital, if by that you mean funds for bank lending, so long as there is a willing borrower, a willing lender reasonably sure of the loan being repaid, and reserve requirements are met."

 

There's no shortage of "capital" if the Fed is willing to create money out of thin air.

 


"Actual capital investment" as in new plants and equipment? Isn't productive over-capacity (or, conversely, lack of demand for the products of that capacity) the reason we keep hearing for the high unemployment? So government borrowing isn't hampering the ability of the private sector to invest in that kind of capital. Producers have plenty, much of it having already been moved out of the country and seemingly determined to stay there.

 

I use "capital" in the sense of anything that is used create value and increase wealth. It can be labor, materials, machinery, etc. "Capital" can also mean the money used to purchase those items, whether obtained through loans (the usual way) or through savings (very unlikely unless the investment is very small).

Originally Posted by Mr.Dittohead:

...The rest is just blather. 


 

I'm not sure how the debt ceiling got to the financial collapse...other than the argument is we need more government...so we need more debt...

 

But here's more "blather" for Ditto...and actual facts and sanity for the rest of us...

 

What deregulation?

OK  we got rid of Regulation Q...that put a cap on interest rate charge on a saving account.  That was the 80's...so this caused a world wide financial meltdown 3 decades later?

In early 90's we had restrictions lifted on interstate branch banking.  Bad thing?  It seems that would give them a chance to diversify their holdings with deposits from across the country making banking more stable...but again, it caused a blowup 20 years later?

Repeal of Glass-Steagall...this is what everyone harps on...whoops, Bill Clinton signed it with Joe Biden's support.

Glass-Steagall separated commercial and investment banks.  Commercial banks couldn't underwrite securities...they can buy and sell them, but can't deal in them.  Investment banks couldn't take deposits.  And the same parent company couldn't own both types. 

The only part that was revised in 1999 was the last part...that one parent company couldn't own or control both commercial and investment banks.

That's it.  That's the big thing every one said caused this huge mess.

This has nothing to do with what happened. 

 

One...Stand alone commercial banks and stand alone investment banks did just as badly as those controled by the same holding company.

 

As mentioned above no repealed regulation would have prevented the securitization of mortgages or banks holding them...they always could.

By the way the Obama administration, to their credit, has moved away from this "version"..."deregulation"...of what caused the meltdown.

There is no repealed regulation that would have prevented the current crisis.

Regulatory agencies...in real terms, adjusting for inflation, spending on the agencies that regulate the financial sector has tripled since 1980 and did not get cut under W.

As mentioned above there are at least 115 agencies overseeing the financial sector...forgive my skepticism, but I don't think if only we had 116, THEN we could have seen this coming.

 

By the way the regulators we had...told us everything was fine!

How's this for "government regulation".  Prudential Regulation...

For every $100 in standard loans you had to have $10 in capital.  For every $100 in mortgages you had to have $5 in capital.  For every $100 in triple A rated mortgage backed securities you only had to have $2 in capital.

So take a wild guess where everybody and his uncle went in to?

Without the "herd" mentality that this type of regulation encouraged, they would have been more diversified.  So it collapses and because of mandated government regulation it's all the worse...All thanks to our wise over lords.

Did we have poor management of major financial institutions?  Sure.  But that's why we need failure instead of bailouts, so we don't have the same bozo's still in business.

 

Ah but you see, they are politically connected bozos...and this has exactly what to do with the free market?

Further quote from Dr. Woods:

 

“I cover this in detail in my forthcoming (February 7) book Rollback. For now, I’d ask your friends for specific examples of deregulation that led to the present crisis. They can’t name one. There isn’t a repealed regulation that would have prevented the securitization of mortgages, or prevented banks from holding such securitized mortgages as investments. Banks were allowed to do this all along. If they cite the so-called repeal of Glass-Steagall they are even more clueless. The partial lifting of barriers between commercial and investment banking had exactly zero to do with the financial crisis.

--------------------------

 

Then why the passage of the Glass-Steagall Act in the first place? Was it merely a maniacal lust for power from a socialist regime?

 

Investment banks play the stock market and risky ventures with their money (actually, your money that you have given to them for that purpose). Commercial banks (your friendly neighborhood bank you have your savings account with) isn't supposed to be gambling with your paycheck and grocery money that you have entrusted to them for safekeeping.

 

 

According to a summary by the Congressional Research Service of the Library of Congress:

 

In the nineteenth and early twentieth centuries, bankers and brokers were sometimes indistinguishable. Then, in the Great Depression after 1929, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act.

 

The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Elizabeth Warren, author and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said that the repeal of this act contributed to the Global financial crisis of 2008–2009.

 

In mid-December 2009, Republican Senator John McCain of Arizona and Democratic Senator Maria Cantwell of Washington State jointly proposed re-enacting the Glass–Steagall Act, to re-impose the separation of commercial and investment banking that had been in effect from the original Act in 1933, to the time of its initial repeal in 1999. Legislation to re-enact parts of Glass–Steagall was also introduced into the House of Representatives. Banks such as Bank of America have strongly opposed the proposed re-enactment.

http://en.wikipedia.org/wiki/G...Steagall_Act_of_1933

 

See also:

Weissman, Robert; Donahue, James. "Sold Out: How Wall Street and Washington". Wall Street Watch. Retrieved 26 March 2011.

http://www.wallstreetwatch.org/reports/sold_out.pdf

Originally Posted by The Propagandist:

Then why the passage of the Glass-Steagall Act in the first place? Was it merely a maniacal lust for power from a socialist regime?

 

 

 


 

 

Uhh...yes?!?

 

I wasn't debating the merits for or against Glass-Steagall, just pointing out that this is what many pointed to as the cause...

 

As pointed out above, even Obama has moved away from this "blame".

 

The point is, Glass-Steagall was not repealed, but revised.  Investment banks and commercial banks are still separated, but can now be owned by the same holding company.

 

This is what brought the world to the edge of Armageddon?

 

And the further point being that the degree of separation of such banks hand nothing to do with the current meltdown.

 

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